Orlen Południe and PGNiG to build a network of biomethane plants: letter of intent and a joint 51/49 company

Orlen Południe and the Polish Oil and Gas Company (PGNiG) signed – as announced on 6 May 2021 – a letter of intent on cooperation in building a network of biomethane plants in Poland. The investments are to be carried out by a special purpose company in which Orlen Południe will take 51% of the shares and PGNiG 49%. The creation of the company requires the consent of the President of the Office of Competition and Consumer Protection (UOKiK).

Scope of cooperation

The letter of intent provides for cooperation in three areas:

• acquiring and building biogas and biomethane installations;
• developing biomethane production technology;
• using biomethane in the operations of both capital groups.

Biomethane from the planned installations is to be injected into the distribution network, in which PGNiG has a significant share. The concept combines Orlen's feedstock and investment resources with PGNiG's experience in gas trading and network management.

Projects on the list

The following locations were named in the announcement:

• Konopnica (Rawa Mazowiecka municipality) – an operating biogas plant, which Orlen Południe bought in December 2020;
• Wojny-Wawrzyńce (Szepietowo municipality) – an agricultural biogas plant, the purchase of which was finalised in March 2021;
• Ryn municipality – two plots bought in January 2021, on which Orlen's own installation is under construction.

Orlen Południe plans to expand these installations and convert them into biomethane plants injecting gas into the distribution network. Volumes for individual locations were estimated at several million m³ per year.

Significance for the market

The combining of forces of the two largest Polish fuel and gas companies around biomethane is the strongest market signal so far that this sector is to develop in Poland. For private investors it means a potential partner or competitor, for technology suppliers – a large customer, for farmers – a potential buyer of substrates.

Unknowns remain, however: the lack of a legal definition of biomethane and of a support system, questions of grid connection and profitability, and the UOKiK consent for the creation of the company.

What next

The next stages are obtaining the consent of the competition authority, setting up the company, determining the investment schedule and choosing the technology. For readers of the compendium, what matters is how quickly the projects will move from plans to the first volumes in the grid, which depends on regulation.

Why a 51/49 special purpose company

The split of shares reflects the division of roles: Orlen Południe brings to the project existing and planned biogas plants and competence in acquiring and handling agricultural projects, and PGNiG – access to the gas market, distribution networks and trading experience. UOKiK consent is required because the creation of a joint company by two large participants in the fuel and gas market is subject to merger control.

How biomethane reaches the customer

Biomethane injected into the distribution network would mix with natural gas and be settled as gas from the grid. Its renewable character would have to be confirmed by a document of origin – a guarantee or certificate – the introduction of which in Poland was then being discussed in the context of the sector agreement. Without such a document, a producer could not sell biomethane at a premium for its renewable character.